Moutai
“Moutai is still Moutai; the business model is solid. Ten years from now, people will still say that price 10 years ago really wasn’t expensive.” — Duan Yongping (2017-12-14)
🏢 Basic Information
- Industry: Baijiu / Consumer Goods
- Core Product: Feitian Moutai (53% ABV)
- Duan Yongping’s Holding: Yes (started buying around ¥180 after the plasticizer incident)
- Duan Yongping’s Assessment: Business model is solid; one of the very few businesses not afraid of having inventory
💡 Duan Yongping’s Core Views
Why is Moutai’s business model good?
- Inventory is a treasure, not trash: Inventory in consumer electronics is nearly trash, but Moutai’s inventory is practically a treasure — it appreciates with age
- Extremely strong differentiation: Baijiu consumers have very high loyalty; taste, mouthfeel, and drinking culture create extremely strong differentiation
- Not afraid of inventory: This is a rare business model not afraid of holding inventory
- Strong pricing power: The ability to raise prices indicates a moat
Moutai’s Moat
- Extremely high brand loyalty
- Unreplicable production location (special geographic environment of Maotai Town)
- Aged liquor becomes more valuable over time
- Reinforced by domestic “face” culture and gift-giving culture
🔍 Qualitative Analysis in Three Dimensions (Right Business / Right People / Right Price)
Duan Yongping opens the Moutai case by clarifying his investment framework:
“right business + right people + right price + time = good result. Although this isn’t a sufficient formula for investing, a good result becomes a fairly high-probability outcome.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-04-20)
I. Business Model (Right Business)
Differentiation is core: Those who like drinking Moutai won’t switch to Wuliangye because Moutai raised prices. Price wars tend to occur when product differentiation is weak; baijiu is a highly differentiated product.
“Price wars tend to occur when product differentiation is weak. Baijiu is a highly differentiated product — at least that’s how it feels. See’s Candy is also a highly differentiated product.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2011-01-14)
Business not afraid of inventory: Moutai’s inventory appreciates over time — this is extremely rare among consumer goods.
“Comparing Moutai’s business to our consumer electronics, the biggest difference might be inventory. In our industry, inventory is almost trash; Moutai’s is practically a treasure.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-12-12)
Growth potential: Moutai has an extremely small market share in Chinese baijiu (around one-thousandth); for good liquor with only one-thousandth market share, there’s no need to worry about growth potential.
“Moutai’s share of Chinese baijiu is extremely small. For good liquor with only one-thousandth share, what exactly are you anxious about?” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-10-28)
II. Corporate Culture (Right People)
Moutai’s “Four Principles of Subordination”: Production subordinates to quality, speed subordinates to quality, cost subordinates to quality, profit subordinates to quality. “Don’t dig up old pits, don’t sell new liquor”;出厂 liquor is at least 5 years aged.
“As a state-owned enterprise, Moutai does have some imperfections, but the culture of making good liquor is why Moutai is Moutai. With this kind of culture, only Moutai can be Moutai!” (Source: Duan Yongping Investment Q&A (Investment Logic), 2014-01-23)
“Moutai IS that 53° Feitian — whoever changes it steps down, haha.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2018-05-20)
“Personally I feel Moutai’s product culture has already been set in stone. With so many people watching, no one dares change it. The advantages of state-owned enterprises are fully demonstrated in Moutai; private companies might actually change due to individual factors.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2019-03-15)
III. Valuation (Right Price)
Rough estimation mindset: Looking from a 10-year perspective, the difference between 130, 160, or 200 isn’t actually that large.
“I think Moutai’s business model is rare; you can buy when the price is right, without needing to wait until it’s very cheap. From a 10+ year perspective, the difference between 130, 160, or 200 isn’t actually that big.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-09-30)
“Long-term, it’s hard to get 5% interest from banks, so as long as Moutai’s long-term return can reach 20x PE or better, Moutai isn’t expensive.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2019-03-15)
📅 Entry Timing: The Plasticizer Incident
At the end of 2012, the baijiu industry’s plasticizer incident erupted, causing Moutai’s stock price to plummet. Duan Yongping commissioned a friend to have 53° Feitian Moutai purchased from the US market tested, and based on the test report confirmed Moutai hadn’t intentionally added plasticizers, then began buying on a large scale.
“It seems back then we started大规模 buying Moutai after confirming from this test report that there was no problem.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-01-28)
“Although I don’t drink baijiu, I felt that people who drink wouldn’t stop drinking baijiu because of this incident.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2012-12-06)
“Holding this price for 5 years or longer should yield decent returns.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-02-07)
❓ Selected Q&A
Q: Does Moutai have a direct relationship with corruption?
A: Do you think our previous [consumption] wasn’t real? Moutai doesn’t have a direct relationship with corruption, but reducing public spending would indeed reduce much waste and should also affect sales volumes of Moutai and many other things in the short term. However, public spending probably isn’t the main driver of Moutai’s sales. If Moutai’s short-term sales decline somewhat, couldn’t the output of aged liquor be increased? It truly is a rare business model not afraid of having inventory. (2013-02-13)
Q: What’s the difference between Moutai’s business model and consumer electronics?
A: Comparing Moutai’s business to our consumer electronics, the biggest difference might be inventory. In our industry, inventory is almost trash; Moutai’s is practically a treasure. (2013-12-12)
Q: How do you interpret “Moutai is still Moutai; the business model is solid”?
A: Moutai is still Moutai; the business model is solid. Ten years from now, people will still say that price 10 years ago really wasn’t expensive. (2017-12-14)
Q: How could Moutai’s status in Chinese minds be changed?
A: Push more cheap non-53° liquors, including Moutai beer and wine, even Moutai rice wine, plus Moutai mineral water, Moutai hotels, Moutai phones, Moutai air conditioners, accelerate launch speed, drop the 5-year aging rule, ignore fake liquor too… Ten years later, Moutai’s status should be completely different. (2015-02-16)
Q: Should Moutai do addition or subtraction?
A: I think Moutai should do subtraction rather than addition. It seems Moutai is heading somewhat in this direction too; hope they can persist. (Source: Duan Yongping Investment Q&A (Investment Logic), 2014-03-25)
Q: Why is looking at 10 years easier than 3 years?
A: When we bought Moutai (around 2012–13), we didn’t know how Moutai would perform in the next 2–3 years, but I could say with high probability that Moutai would be doing well in 10 years. Now it hasn’t even been 10 years yet, and results are already quite good. Actually using Old Buffett’s line makes it easier to understand: knowing what will happen is much easier than knowing when it will happen. (2018-10-23)
Q: Is buying Moutai now a relatively good choice? (2018-10-29)
A: “Relatively good” means compared to your own opportunity cost, so only you yourself can know whether now is relatively good. Personal view: buying now and looking back in 10 years will likely clearly beat bank deposits. (2018-10-29)
Q: What’s the difference between Moutai’s dividends and Apple’s buybacks?
A: Moutai’s business model is decent, but how they handle their earned money is less than satisfactory; Apple is perfect in this regard. You can see this from how differently these two companies behaved when buyback opportunities appeared in recent years. Moutai even had some absurd situations where dividends actually declined because the stock price fell. Apple’s articulation of its dividend and buyback strategy is very clear; as a shareholder it’s basically predictable, whereas Moutai gets influenced by non-shareholder factors. (2015-04-09)
📊 Duan Yongping’s Buying Logic
- Entry timing: Started buying around ¥180 after the plasticizer incident
- Buying logic: Good business model, wide moat, decent corporate culture
- Holding logic: Good companies don’t need to be sold; looking from a 10-year perspective, interim ups and downs don’t matter
💬 Original Quotes
“right business + right people + right price + time = good result. Although this isn’t a sufficient formula for investing, a good result becomes a fairly high-probability outcome.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-04-20)
“Moutai is still Moutai; the business model is solid. Ten years from now, people will still say that price 10 years ago really wasn’t expensive.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2017-12-14)
“Comparing Moutai’s business to our consumer electronics, the biggest difference might be inventory. In our industry, inventory is almost trash; Moutai’s is practically a treasure.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2013-12-12)
“Moutai IS that 53° Feitian — whoever changes it steps down, haha.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2018-05-20)
“In A-shares we mainly hold Moutai. Looking from a 10-year perspective, Moutai still isn’t expensive. Turning green last week or last quarter is nothing remarkable.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2018-09-08)
“Moutai’s business model is excellent. Even if you bought at current prices, 10 years from now it should at least be better than putting money in the bank.” (Source: Duan Yongping Investment Q&A (Investment Logic), 2019-03-15)
🔗 Related Notes
Related Concepts Moat · Business Model · Differentiation · Pricing Power · Corporate Culture · Long-termism Related People Duan Yongping Related Topics Duan Yongping’s Classic Investment Cases · How to Judge a Good Company · Criteria for Good Companies